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There might actually be a viable alternative for parents with young children and that is the 529 pre-paid tuition program. The theory behind the pre-paid tuition program is to lock in today’s tuition prices. In the past, many parents flocked to the 529 college savings plan instead of the pre-paid tuition plan because they didn’t want to lock in a choice of schools, but these programs deserve another look in today’s challenging economic times. Pre-paid tuition plans provide safe and affordable college savings alternatives for families seeking peace of mind through a lower risk option. There may be some merit for families who might otherwise not be able to afford tuition or whose students may want to go on to graduate school. Parents and students may be able to save the loans for graduate school.

There are two types of pre-paid tuition plans: one for public institutions and another for private schools. Every plan works differently so parents and grandparents need to do their homework, but they may be worth looking into. Here are a couple of examples:

Pennsylvania’s Guaranteed Savings Plan has two important benefits: first of all, Pennsylvania residents are eligible for a state income tax deduction of up to $13,000 per beneficiary ($26,000 if filing jointly) for contributions made to the plan. Secondly, the plan guarantees that the growth on contributions will be based on increases in tuition, and not necessarily on investment performance, which means the Guaranteed Savings Plan—not the account owner—assumes all the investment risk. As long as these funds are used for qualified college expenses, this guarantee applies. (Please note that the guarantee is made by the fund itself, and not by the Commonwealth of Pennsylvania.)

In contrast, the Texas Tuition Promise Fund is a true pre-paid tuition plan in that you purchase tuition units based on today’s costs. Later, these tuition units are exchanged for college units no matter the current cost. The Texas plan is flexible in how parents pay with three plans: a lump sum, pay as you go, or installment plan. If the student ends up not going to college (or not going to college in Texas), you can change the beneficiary to another child or family member.

Originated in 2003, the Private College 529 Plan (formerly called the Independent 529 Plan) offers pre-paid tuition to over more than 270 participating private colleges and universities. From Pepperdine University in California to George Washington University in Washington, DC, students have a wide range of colleges to choose from. Parents and grandparents can buy “tuition certificates” today that can be redeemed for college units later regardless of the price increase as long as they are held for at least three years. This type of plan would be favorable for families that live in states that don’t have pre-paid plans such as California and New York.

If you live in a state that has a pre-paid tuition plan consider revisiting this plan to see if it makes sense for your situation. We never know what the future may hold, but at least with some tuition units, you may have a little bit of certainty. It may make the difference between being able to fund college or not. In the case of the private school plan it may simply broaden your student’s horizons. The only thing left to do in the future would be to try to steer your future teenager to attend your alma mater. That may prove to be the most difficult task.

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